Disclaimer: I am not a financial advisor. These are just my opinions. Before making any big financial decisions, please discuss it with a financial professional.
Short Answer
If your mortgage rate is low (think 3-5%) and you have a long time horizon before retirement, investing in the stock market will almost always produce a higher net worth than aggressively paying down your mortgage. But money isn’t just math — it’s emotional too. This is a question I’ve thought about a lot, so I wanted to break down both sides, share the numbers, and tell you what I personally do.
There’s no single “right” answer here. It depends on your risk tolerance, your interest rate, your investment timeline, and honestly, what helps you sleep at night. Let’s look at both paths.
The Case for Paying Down Your Mortgage
Paying off your mortgage early can feel incredibly satisfying. That 800-pound gorilla sitting on your head — gone. Once the loan is paid off, your monthly obligations drop significantly, and so does your overall financial risk.
We experienced this firsthand. We once refinanced a property we owned and used the opportunity to pay down a big chunk of the loan. It freed us up mentally and financially every single month. There’s real value in that peace of mind.
For our current home, while I was working full-time, I made it a habit to put a couple hundred extra dollars toward the principal each month. I didn’t go overboard, though, because mortgage rates over the past several years have stayed relatively low — typically in the 3-4% range. Today, whenever I make extra money from selling excess stuff around the house, I still put it toward an extra mortgage payment.
Source: valuepenguin.com historical mortgage rate data*
The Case for Investing in the Stock Market
My personal preference has always leaned toward investing. The logic is simple: mortgage rates have been low, and money put into the stock market has historically earned a much higher return than the interest you’d save by paying down a cheap loan early.
Take a look at S&P 500 returns from 2012 to 2016 — a solid proxy for the broader market:
Of course, you might be thinking: those were just the good years right after the recession. Fair point. But if you zoom out and look at the S&P 500 since 1930, the overall trend keeps climbing over the long run, even with painful dips along the way.**
Key Principles to Weigh Before You Decide
Before you pick a side, here are the factors that actually matter most.
Invest for the Long Term
The market has had major downturns that sometimes took 10-15 years to recover — but it eventually reached new highs each time. Riding out those downturns takes courage and a financial cushion. This is exactly why a 6-12 month emergency fund matters so much.
Don’t Time the Market — But Take Advantage of Sales
A $1 invested in 2009 would be worth $3.45 today, a 13.49% annual return.*** A $1 invested a decade earlier, in 1998, would be worth $3.82, an 8.18% annual return.*** You could have earned nearly the same total return in the last 10 years as in the last 20. If the market dips and you have spare cash, that’s often a smart time to invest — not to panic and pull out.
Diversify Your Portfolio
Don’t try to pick individual winners. It’s been proven repeatedly that beating the market consistently is extremely difficult. I prefer low-cost index funds that track the entire market, like Vanguard’s VTI, VTSAX, or VFINX.
Adjust Your Asset Allocation by Age
When you’re young, you can afford to weight your portfolio heavily toward stocks since you have time to recover from downturns. As you get older, shift more into bonds. A common rule of thumb: subtract your age from 100 to get your stock percentage. At 40, that’s roughly 60% stocks and 40% bonds. A fiduciary financial professional can help fine-tune this for your situation.
Follow the 4% Withdrawal Rule
Once you start withdrawing from your portfolio to fund your lifestyle, don’t exceed roughly 4% per year. This gives your investments room to recover after market downturns instead of being drained during them.
My Personal Take
So here’s how I actually answer this question for myself: instead of aggressively paying off our mortgage, I focus on investing in low-cost stock market index funds. Why? Because I have a 20-30 year investment horizon, and that time gives compounding returns plenty of room to work in my favor.
That said, I still pay a little extra toward our mortgage principal every month. It’s not the mathematically optimal move, but it gives me emotional satisfaction, and that counts for something too.
Summary and Next Step
There’s no universal right answer to paying down your mortgage versus investing. If your rate is low and your timeline is long, the math tends to favor investing. If debt keeps you up at night, paying it down may be worth the lower return. The best approach often blends both — invest for growth, and pay down a little extra for peace of mind.
I’d love to hear how you think about this. Feel free to leave a comment or send me an email with your own approach.
Still Weighing Your Options?
Read more about building a financial independence strategy that fits your goals.
Sources:
* valuepenguin.com/mortgages/historical-mortgage-rates
** macrotrends.net/2488/sp500-10-year-daily-chart
*** moneychimp.com/features/market_cagr.htm